Norway and Goliat: Little Country, Big Oil Incentives

Over the weekend, Eni Norge began production at the much-delayed Goliat offshore oil rig – the license was first awarded in 1997 – the first offshore rig in the Barents Sea. While hydrocarbon exploration and development in most of the Arctic is in rapid retreat, Norway continues to invest in the Barents – and continues to affirm that decision in spite of controversy. New leases continue to be issued – the most recent came at the end of February. This stance on the part of one of the most environmentally forward acting nations certainly highlights the contradictory influences of economic development and environmental protection. Costs of production are certainly lower in the Barents than much of the Arctic due to milder climate and good transportation and infrastructure – but they are not low enough at current oil prices to justify continued development. Long run trends are highly uncertain, and this critical Post-COP21 juncture in international climate actions should provide incentives for Norway to lead in divestment from hydrocarbons rather than double-down.

While it may be an example of decision-makers failing to ignore sunk costs or trying to prop up the industrial complex surrounding Norwegian oil in hopes that bets against the end-of-oil era taking real hold pay off, given Russia’s continued activities in exploration, it seems likely that it is also to a large extent a strategic decision to influence the development path overall in the Barents. The treaty defining the marine border between Russia and Norway was only finalized in 2010 – and it consists of two concerns: fish and oil. In this light, one might interpret continued Norwegian presence as an attempt at leadership in a sort of “sustainable development” – that is, economic development while mitigating direct (and locally controllable) environmental risks and damages.

Here we see that marginal shifts in behavior may limit a grander restructuring necessary not just for “sustainable development” but sustainable existence that accounts for the indirect risks and damages which may be much larger in scope and impact. Economic thinking must evolve more rapidly to embrace non-marginal solutions, even if the math is harder!!

Photo of Goliat og Hurtigruten: Anders Mildestveit/TV2

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Published by Brooks Kaiser

I'm an Environmental and Resource Economist and Economic Historian at the University of Southern Denmark. An American abroad, I research topics ranging from funding of public goods in Ancient Greece to Arctic Marine Resource Economics and Invasive Species.
View all posts by Brooks Kaiser